Srinagar: Reserve Bank Governor Raghuram Rajan on Thursday said there was no reason for RBI to manage public debt and he would be happy if the debt management function goes to the government.

"...I don't see any reason why RBI should continue doing the PDMA (Public Debt Management Agency) functions. I am happy to let it go to the government," he said.

The RBI governor was replying to questions from students of Kashmir University's Business School here.

Following the controversy over setting up of the PDMA and shifting of regulation of G-Secs from RBI to Sebi, the government withdrew the proposal from the Finance Bill and decided to draw a roadmap for transfer of debt management function from RBI to an independent agency.

While the Reserve Bank of India (RBI) would keep its regulatory powers for now, a road map would be prepared over the next one year for a unified financial regulator, with regulatory powers on G-secs, currency and derivatives likely going to the Securities and Exchange Board of India (Sebi).

Rajan said that there was full understanding between him and the Finance Minister Arun Jaitley on setting up of the PDMA.

"Finance Minister and I have a full understanding on these issues... PDMA will fully move over time and we are fully supportive of that," he said.

Observing that it can be done any time, the Governor said "there is huge hue and cry being made about the PDMA as if this organisation is going to change the face of India when in fact this is a very very small organisation."

Talking about phasing out of Statutory Liquidity Ratio (SLR), he said it has been historically set by the RBI.

"There is nobody in the government who would say I want to finish off SLR because everybody in the government knows they find it very hard to sell off government debts if SLR is brought to zero or 1 per cent," he said.

"So nobody wants it to be brought down immediately. They want it to be brought down in a measured way," he added.

On the liquidity deficit, Rajan said it has been at one percent for quite some time.

"This is the level that we feel comfortable with...If we move to a surplus liquidity situation, then it shifts automatically towards the reverse repo rate which is 100 bps below what we want policy rate to be at. So I think some deficit is needed, 1 per cent is not too bad," he said.

Operating level of deficit has ensured that market interest rate close to the policy rate, he added.